About Government Refinance and Home Purchase Programs

Information and Updates on Government Mortgage Programs
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Several months ago a homeowner in Southern California contacted us for some guidance. Her family was deeply upside down on their home, with the first and second mortgage adding up to more than $100,000 greater than the current value of the property. Initially we were hoping that the Hope For Homeowners programs would be a success and help the family out. But this fall it was becoming apparent that H4H was a flop so we recommended she proceed with trying to get a loan modification with her current lender.

Well things apparently worked out. We learned a few days ago that her current lender offered her a 5 year interest only loan at less than 4%. That significantly reduces the family’s payments for the next five years and keeps them in the home.

Why would a bank offer such a program? Well in this situation it makes good business sense. The bank knows that if they did nothing the family might be forced to simply not pay at all. That would likely lead to a a foreclosure in 6-12 months. Foreclosures cost banks a lot of money in legal and administrative fees to begin with, and in this case the bank would only net a home that is worth $100,000+ less than they lent to begin with. Plus the bank runs the risk of vandalism and all sorts of other bad things if it tried to foreclose.

So the bank apparently decided it would better to keep the family in the home even at a very low interest rate. It is true that the family might not be able to make the pending higher payments in five years as well, but in that time the values of homes in the area could be back up again so foreclosing would make more sense if it came to that.

The good news is that banks seem to be coming around and seeing the light when it comes to loan modifications. The moral of the story is that if you are upside down on your home and can’t keep up with payments, and you don’t currently have an FHA or VA loan, your best option is to contact your current lender about a loan modification. (If you are upside down and have an FHA or VA loan now contact us about a streamline refi). With any luck stories like this one will soon be commonplace because as the housing market heals the US economy will follow.

Comments (9) Posted by G.R.A. Admin on Saturday, January 3rd, 2009

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9 Responses to “Editorial: Loan modifications in action”

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